Soros: Fannie, Freddie Crisis Is Not The Last
Billionaire investor George Soros said Monday the crisis over major U.S. mortgage financiers Fannie Maeand Freddie Mac will not be the last, and that the deepening credit crisis is a "serious one" that will impact an already slowing U.S. economy.
"This incident (with Fannie and Freddie) is not the last one," Soros told Reuters in a telephone interview.
The U.S. Treasury agreed on Sunday to raise Fannie and Freddie's credit lines above the existing $2.25 billion apiece and buy shares, if asked, to strengthen their finances. The Federal Reserve offered to let the shareholder-owned but government-sponsored enterprises borrow at the rate it charges banks for direct loans.
"Freddie Mac and Fannie Mae have a solvency crisis, not a liquidity crisis," said Soros. "There's no problem in their borrowing. And in fact, insofar as there is a problem, the Fed is there to provide the liquidity."
That said, both Fannie and Freddie are "extremely leveraged," he said.
"The deterioration in the housing market, the foreclosures, are going to cause losses which exceed their equity," said Soros, whose famous bet against the British pound earned his Quantum Fund $1 billion in 1992.
In afternoon trade on Monday, Fannie Mae shares were down 3.75 percent while Freddie Mac shares were down 12 percent.
"This is a very serious financial crisis and it is the most serious financial crisis of our lifetime," Soros said. "It is inevitable that it is affecting the real economy. It is an idle dream to think that you could have this kind of crisis without the real economy being affected," he added.